Branding Conversations with Pepper

Start-ups & the move towards cashless transactions

8th November 2016 was a landmark day in the history of Indian economy: The withdrawal of legal tenders of ₹ 500 and ₹ 1000 by the Government of India, and the first cohesive attempt to move towards a cashless (or less cash) economy.

Prior to this historic day, most Indians’ preferred mode of transaction was through cash. India has the second largest population with a large, educated workforce. Consumer spending was at an all time high, given increasing disposable incomes, desire for better lifestyles and accessibility of products through e-commerce.

However, the most common mode of payment through e-commerce still remains ‘cash on delivery’. E-commerce companies were forced to implement this necessary evil to lure customers who were wary of on-line transactions. CoD was the biggest game changer, which gave an edge to those who offered the service (such as Flipkart) and edged out those who did not.

Five years later, about 80% of Flipkart’s transactions still happened through CoD.

“In an ideal world, I would not like to have cash transactions. The non-immediacy of payments and higher returns are the problems we face with cash-on-delivery”: Sachin Bansal, co-founder – Flipkart (Source: Economic Times)

Cash on Delivery option adds considerable overheads and drains resources used for verification calls, additional accounting & follow-ups, requires increased manpower, more delivery attempts, heightens the risk factor for delivery personnel due to carrying of cash, delays payments to merchants and vendors, and is generally more complicated, thus putting an increased burden on the entire ecosystem.

How Startups Can Benefit

The current demonetised India situation could well be the first step in creating a solution for a more cashless India. It is true that discretionary spending is at an all-time low. Post 8th November 2016, consumer behavior is more oriented towards saving, reducing expenses or spending, and sticking to the bare necessities.

At the same time, e-wallets like PayTM, Payless, MobiKwik have seen a massive rise in app downloads and transactions. According to reports by PayTM, there was 200% rise in app downloads within 24 hours of the the demonetisation announcement. The company has also recorded a 30 percent increase in users saving their card details on the app.

A recent study by ACI worldwide indicated that India ranks second in e-Wallet usage among APAC countries, trailing China, though on the world stage, we stand quite low. The study also noted that Gen Y consumers, aged between 25 and 34 years, increasingly use e-wallets and mobile payment tools.

Gen Y consumers are leading the way into cashless transactions.

The usage of debit or credit cards in rural areas and older customers had previously been constrained by lack of accessible acceptance infrastructure. With demonetisation and introduction of Jan Dhan Yojana, rural areas are now slowly adopting cashless transactions.

Many people who have access to net-banking or credit / debit cards are using on-line transaction facilities in order to save cash in hand.

A new group of people are on-line today – the ones who had previously never used on-line transactions, who do not have any brand loyalty yet.

The demonetisation move by GOI & resulting current scenario can be capitalised by startups / e-com cos by pushing more offers/deals for online transactions etc.

Be the new ‘Postman’ – Target tier 2-3 and rural markets with specialised incentives for online purchases, even groceries and essentials

The new CoD – Encourage people to shift towards Card-on-delivery

Cash on Delivery orders declined in China when mobile wallets started offering interests. A similar move should be implemented in India as it would help increase Tier 2-3 & rural user base.

The current sentiment of the buyer is not favorable towards discretionary spends, particularly in luxury category. Smart and timely sales campaigns can help shift the mood to cashless transactions. For eg, on-line bill-pay and e-wallet cos like PayTM already started to capitalise on the demonetisation move.

Aggressive discounting in the short-term can also help persuade people to move to on-line transactions.